Newspaper article THE JOURNAL RECORD

Supreme Court Rules Interest on Tax Cant Be Recovered

Newspaper article THE JOURNAL RECORD

Supreme Court Rules Interest on Tax Cant Be Recovered

Article excerpt

The Oklahoma Supreme Court ruled Tuesday in favor of the City of Oklahoma City holding that interest earned on municipal sales tax is an increment to the principal tax, but that the interest could not be recovered since all funds have been appropriated.

The 6-to-3 ruling, based on two companion suits filed by the city against the Oklahoma Tax Commission and the state treasurer, reversed a ruling by the Oklahoma Court of Appeals, which held the city was not entitled to interest earned on sales taxes.

The ruling addressed two questions:

- Whether a municipality which contracts with the Oklahoma Tax Commission for the collection of municipal taxes is entitled to interest earned by taxes deposited in the state treasury.

- If the municipality is entitled to investment interest, whether it may recover interest deposited to the state's general revenue fund.

The courts found that:

- The interest earned on municipal sales tax revenues is an increment to the principal tax and that principal and interest must be expended for the purpose levied.

- Because the fund representing interest earned on the investment of the municipal sales taxes has been appropriated to the Constitutional Reserve Fund, it is not recoverable.

Interest from municipal taxes earmarked for use by Oklahoma City is being diverted to the state's general revenue fund, which is prohibited under state law, the ruling stated. Because the Oklahoma Constitution prohibits diversion of taxes, the interest earned on municipal sales tax revenues is properly attributable to the municipality levying the tax, it noted.

The legislature's amendment of Oklahoma Statute 2702 effective Nov. …

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